Economics, public policy, monetary policy, financial regulation, with a New Zealand perspective

Negative interest rates: some thoughts

I’ve been keeping an eye on the range of commentary and analysis appearing recently on negative policy interest rates – options and limitations. The issue has come back to prominence because of the BoJ’s recent modest move to introduce a negative policy rate, and amid the rising concerns about global growth and, perhaps, financial fragility that have been reflected in market prices – equities, bonds, commodities, CDS spreads etc – since the start of the year.

Doing something about removing, or markedly easing, the near-zero lower bound on nominal interest rates has been a cause of mine for some years. While I was working for The Treasury in 2010 I wrote a discussion note, that got some circulation inside and outside the institution, concluding (somewhat to my own unease) that in some respects the world was less well placed than it had been in, say, 1930 – the early days of the Great Depression. Back then, countries could get rid of the Gold Standard – and eventually did so – markedly easing monetary conditions in the process. Having got nominal interest rates to around zero in much of the advanced world, there wasn’t a great deal else monetary policy could do if economies were to turn down again (or simply fail to recover). Unsterilised fiscal policy (direct purchases of goods and services) might be an option on paper, but by then the tide had already turned against expansionary fiscal policy, and public debt levels in many countries were becoming worryingly (to the public, and conventional political wisdom) high.

The remaining option was to do something about the near-zero bound, which existed – in a fiat money system – only because of policy and legislative choices (typically, a state monopoly on currency issue, and a commitment to convert bank deposits into those state issued notes at a fixed one for one parity). Why hold large proportions of one’s wealth at materially negative interest rates when – once a few set up and holding costs were negotiated – one could hold bank notes at a zero return? (Some earlier thoughts on these issues are here and here)

No central bank had taken policy rates negative during the 2008/09 recession. For some – New Zealand was a good example – there was simply no plausible need. But in others – the US and the UK appear to have been the prime examples – it didn’t happen partly because the relevant authorities really weren’t sure about the implications would be. Whole business models – money market mutual funds, which had run into troubles in 2008 anyway – had been built around the idea the interest rates don’t go negative. And, at the time, it seemed to pretty much everyone that interest rates would be extremely low for only quite a short period, so why risk creating a mess, disrupting well-established business models, for a small short-period additional kick.

As we know, interest rates have now been very low for a very long time. Some argue that wasn’t necessary, or wasn’t desirable, but whether one focused on an inflation target, on the level or growth of nominal GDP, or even economywide credit, it is difficult to conclude that interest rates in most countries should have been any higher in the last few years than they have been. One could, in fact, mount a good argument that they (a) should have been lower, and (b) would have been lower if the technological/regulatory bound had not been there. If, for example, inflation targets in the previous 20 years had been 4 per cent, not 2 per cent, I think there is little real doubt that real interest rates would have been lowered further.

In the last few months of Alan Bollard’s time as Governor of the Reserve Bank of New Zealand – when yet another wave of the ongoing euro-area crisis was upon us – I led an internal working group looking at some of our options if there were to be a new global crisis and a material downturn in New Zealand. We concluded that in our relatively simple system there were few or no obstacles to taking the OCR negative should that be needed – there was, for example, nothing like the money market mutual fund sector to trouble us. We didn’t reach a firm view on how far the OCR could be cut before banks and other investors might turn to physical cash instead, but it seemed reasonable that we would have been able to cut to perhaps -50 or -75 basis points. With a few suggestions to check that our technology could handle negative interest rates, we put the report aside as that wave of tensions eased. Negative interest rates have not yet been needed in New Zealand.

What we didn’t do was to explore how to get around the floor that would inevitably be there at some point. I guess it wasn’t a high priority for the Reserve Bank of New Zealand – with policy rates among the highest in the world, we were further from the floor (whatever it was) than most countries. And – always a comfort – if our interest rates ever did get to zero (or negative) it seemed likely that the New Zealand exchange rate would be very weak. We aren’t a surplus country, or any sort of serious “safe haven”, and if there are no yield advantages to holding NZD assets, in most circumstances there won’t be much foreign demand to hold them.

But as far one can tell, no one else in the senior levels of officialdom anywhere else was doing very much about it either. One can – and should – bemoan the lack of contingency planning, but it probably just reflects the same mistake that has been made around the world since the crisis and downturn started to get underway in 2007. There was a reluctance to recognise what was coming[1], a slowness to react even as the crisis was open us, and once the immediate worst of the crisis was over the constant relentless focus has been on “normalisation”. And it wasn’t just central bankers…..market economists and participants were often just as focused on the tightenings that, it was confidently assumed, were to come. It was the path that led various central banks into premature tightenings and then policy reversals – New Zealand leading the way, with two lots of reversals. And it hasn’t just been about small central banks, or big ones – pretty much everyone has shared in the delusion that it wouldn’t be long until we were well on the way back to “normal” – real interest rates perhaps not much lower than they had been on average in, say, the decade prior to 2007. The US Federal Reserve has often been as fallible as anyone, and it seems increasingly likely that its own “normalisation” programme might be brought to an end, and reversed, after just one tightening.

It all means that dealing with the zero lower bound doesn’t seem to have been treated very seriously by central banks and finance ministries. We now have several advanced economies – covering a large chunk of the advanced world’s economies – with negative policy rates, but in each case it still comes with the question “how far can they go”, and in each case so far the move to negative rates has been less than whole-hearted. Central banks look and sound as though they are backed into it very reluctantly, rather than embracing enthusiastically what needs to be done.

Negative rates have been applied to only a portion of banks’ balances at the central banks – structured, it seemed, to have as little impact as possible on banks and their customers. There has been a logic to that – the focus in many of these countries was on the exchange rate channel, and the announcement effects of moves to adopt negative rates appear typically to have been to weaken the respective exchange rates. But it hasn’t exactly been a ringing endorsement of the efficacy of negative policy rates. It all seems to have been accompanied by a fear of upsetting established business models, and a fear that before too long the limits of negative rates will be reached.

JP Morgan has an interesting note out last week looking at how far various central banks could take policy rates negative, without imposing more of a “tax” on banks than is being imposed in the most negative central bank now. They suggested that some central banks could take a (tiered) negative rate as low as perhaps -4 per cent.

But monetary policy isn’t supposed to work by imposing taxes on banks, but by influencing private sector behaviour through a variety of channels. Substitution effects matter. And so do expectations channel.

But if central bankers don’t believe that they can do much more, or that their tools won’t really have much impact – or perhaps, in their heart of hearts don’t really want to do much more ( after all, surely we need to keep “normalisation” in mind) – it is hardly surprising that people more generally (not just market participants) become nervous when new risks come to the fore (China, Portugal, Italian banks, stresses on commodity producers or whatever) When there is no ringing endorsement from central banks for banks to pass negative rates decisively through to firms and households (savers and borrowers) no wonder banks are tentative in doing so. And that central bank tentativeness further undermines the potential effectiveness of the tools they might still have. We see that with global inflation expectations falling, so much that central banks are struggling to avoid rising real interest rates.

I’m reading Scott Sumner’s The Midas Paradox at present, a stimulating take on the Great Depression. As he notes, in that climate for a country to devalue, or go off gold, was stimulatory. But when markets feared a country might go off gold, even if it had no desire to do so, that was severely contractionary (people – and institutions – ran to gold, rather than paper money, with a cumulative contractionary effect). There wasn’t a belief that central banks could credibly do much to offset that sort of tightening in conditions. There aren’t direct parallels to today’s situation, but if people think that the monetary options are almost exhausted it amplifies the adverse impact of any emerging bad economic news

It is all unnecessary. If central banks five or more years ago had put their minds to dealing with the zero bound, we’d be far better positioned today. Authorities could say with conviction that there was no limit to how far policy rates could be cut. Banks – and savers/borrowers – would be that much more attuned to the possibility of materially negative rates (nominal, not just real). As people like Miles Kimball have pointed out, it doesn’t take the abolition of all physical currency – which continues to have real convenience value for many people/transactions. And that is why it still is not too late to act. Central banks could cap the issuance of their currency, and work with ministries of finance to enable variable conversion rates. These are unfamiliar concepts to the public – and would take some socialisation. But every day that is lost in beginning work on these sorts of initiatives exposes the world economy to really serious threats if the current set of risks crystallise (or another lot do a little further down the track).

In having delayed so long, when central governments and governments do finally move it risks looking like a panic measure. It isn’t clear how to avoid that now – but the best chances to avoid that sense is in those countries that still have some conventional monetary leeway (New Zealand and Australia among the few).

And, of course, the other option that could have been pursued was a higher inflation target. I’ve written about this previously, as have others. I still regard it as less desirable than the alternative – doing something directly about the near-zero bound. That is particularly so in countries that have already pretty much reached the limits – if the central bank has no effective instruments why would anyone give much weight to an increase in an announced inflation target. Again, the options are different for New Zealand and Australia.

Central banks and governments have delayed far too long already, and they now risk reaping a very nasty harvest – or, more accurately, seeing it imposed on their populations. It was when central banks and governments finally moved off the Gold Standard – usually just as reluctantly as today’s central bankers are too fully embrace negative rates and/or higher inflation targets – that economies finally began to sustainably recover from the Great Depression. Today’s threats are a little different in the details, but there is a pressing need for markets, the public and politicians to come to believe with some conviction that inflation will return, and that authorities have the instruments to raise inflation effectively and without question. Persistent doubts on that score – including doubts of self-belief among the central bankers – only increase the risks of a very nasty global deflationary period over the next few years. Cutting policy rates barely as fast as inflation expectations are dropping away isn’t a recipe for boosting demand – or creating any sort of robust confidence that inflation targets will be met. Central bankers barely believe they will. Why would anyone else?

[1] I recall a serving G20 Governor telling me at a conference in early 2008 that he couldn’t understand what the Fed thought it was up to cutting interest rates. A few months earlier, at another international meeting, a senior Fed staffer told us that while the market was beginning to look for cuts, the Fed still thought the next Fed funds move was upwards.

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31 thoughts on “Negative interest rates: some thoughts”

the obvious policy tool left is direct monetisation of government spending for 2 to 3 years to lift aggregate demand and inflation there of plenty of local government capex that could be funded by rbnz financing the LGFA

Yes, I noted that as a possibility, but I don’t think it is likely to be a politically feasible approach in most countries, where govt debt is already high (and lots of govt capex is pretty poor quality)

To my mind, there is little doubt a central bank can ‘debauch the currency’ given its ability to create and price central bank reserves as it desires. But therein lies the problem: attempting to generate inflation through unconventional methods while at the same time seeking to anchor those pesky inflation expectations at the desired target in conjunction with maintaining confidence in the currency/policy path – what a pickle! Which suggests to me low or negative official interest rates really only buy time: time to adjust balance sheets, time for innovative public policies and above all, time to return to normal where normal is defined by a realistic appraisal of long term growth and the extent to which an economy can borrow from its future.

Of course, what isn’t clear is what the realistic long-term growth is. In the middle of the Great Depression – even 10 years in in the US – there were a lot of people who thought the new normal was a path well below the pre Depression path. That turned out not to be so. At present, it looks more likely that there has been a structural slowing in productivity growth – unlike the 1930s.

…..yip, very difficult to know but whatever the long run growth rate is, it is likely to be more sustainable with a better balance between debt and equity financing. Low official interest rates are said to encourage ‘risk seeking/search for yield ‘ behavior which paints a somewhat negative picture of what seems to be required and what the capitalist stystem thrives on – notwithstanding the difficulty of pricing (equity) ‘risk’. The days of getting a postive real return by leaving money in the bank are likely over but perhaps this wasn’t normal in the first instance….

I doubt it is over permanently. After all, consumption tomorrow is generally less attractive than consumption today (across society as a whole) and nature generates positive returns (think of fruit on an untended tree), and returns should equalize over time. But the bog mistake of the last decade looks to have been to focus on where things must/might “inevitably” get back to one day, and not focus sufficiently on data flow, and risks around it (on both sides).

….I would argue risk premiums should revert to the mean over time but official policy rates are open to debate. I think this is where JMK may have had it right – in a fiat monetary economy, the rate of interest/yield curve can in theory be pinned indefinitely by a credible central bank (supported by credible fiscal policy) leaving animal spirits to determine risk and return relationships.

still depends on the underlying productivity and investment opportunities in the economy. Demography is working against investment at present, arguing if anything for lower savings rates globally. Productivity growth has slowed but (a) is still positive, and (b) the limits of human ingenuity (and the climate that encourages discovery/innovation) seem unlikely to have been reached.

Governments of the world have been suckered by the BIS into stopping their central banks from creating debt-free, interest-free money for spending on infrastructure. As a result, their taxpayers have paid an enormous price in unnecessarily high taxation. In Canada alone, since 1974, this is reputed to have amounted to $C2 trillion.

The Bank of Canada was stopped from so doing in 1974. Recently, a monetary reform movement called COMER has brought a lawsuit to force the Bank of Canada to return to such Overt Monetary Financing (OMF). Up until 1974, OMF was used to finance such infrastructure as the St Lawrence Seaway and the Trans Canada Highway system — all without causing inflation.
See http://www.watershedsentinel.ca/content/bank-canada-lawsuit

In New Zealand, OMF by the RBNZ in the 1930s enabled the government to build the first state houses, plant forests and build lots of roads and bridges — all without causing inflation, because otherwise plant and equipment, and men, would have been idle.

These days, we have a Minister of Finance who has never learned, or has simply forgotten, the lessons of the past. He is on record as having opined that for the government to have the RBNZ create new money ex nihilo as OMF for infrastructure would be inflationary, but that for the government to borrow from commercial banks the same amount of money for the same infrastructure, at great additional cost by way of interest and the necessity to repay the principal, would not be inflationary. No doubt this shonky advice was tendered to him by his minions in the Treasury!

Most likely, that is because the Minister of Finance, along with his colleagues Steven Joyce and John Key, and the Treasury minions, believe the nonsense taught to all New Zealand economics students, that banks are financial intermediaries that take in money from savers, aggregate it, and lend it to borrowers, and that banks earn their incomes from the margins between the interest rates that they pay savers and the interest rates that they charge borrowers.

With the NZD held up by our higher than average global interest rates, farmers resilience in the face of falling dairy prices will be harshly tested. John Key has mentioned he is surprised our NZD has held up. It should not be a surprise. You could argue that the record numbers of international students(boosting net migration to 67,000 for the year) who spend $2.85 billion is creating pressure on resources forcing the RBNZ to keep interest rates high or you could also argue that it is this very injection of international students and visitor tourists at a record 3 million that is keeping the NZ economy buoyant.

My thoughts are that the OCR at 2.5 should still be held rock steady. Savers continue to flock to the NZD which would continue to naturally put downward pressure on interest rates by the banks. Let the banks manage that downward pressure and we will see interest rates on commercial activity fall as they try and maintain their margin. The RBNZ has made it far too easy for banks to make record margins by manipulating the lag time between debt interest rates and savings interest rates as they move the OCR downwards. We do not want to see rapid interest rate rises again. The RBNZ should not be a superstar that business has to wait for the next announcement. Lets have less RBNZ intervention.

getgreatstuff, by writing that banks “try and maintain their margin ….” and “The RBNZ has made it far too easy for banks to make record margins by manipulating the lag time between debt interest rates and savings interest rates as they move the OCR downwards.”, seems not to understand that banks do not lend out their deposits. Rather, bank lending creates deposits. For such a ‘margin’ to be meaningful, banks would have to become moneylenders that earn their incomes from the margins between the interest rates that they pay savers and the interest rates that they charge borrowers. This is precisely what the Sovereign Money proposal entails.

It is easy to mouth theory without understanding the practical implications. of such theory. Think for example OBR. How does that apply in your theorectical world and what does OBR actually does?

OBR shaves a banks savings deposits, actual people lose their life savings. Why do that if you can at a stroke of a pen just create more debt to balance the banks net asset position as debt is an asset on the banks books. Just so easy, create more bank lending and the deposit is created? Work through the practicalities of your theory and explain OBR and why bother?

….’the’ real interest rate is unobservable and estimating it is subject to huge uncertainty. But its relevance in a monetary economy should be questioned. Those in business and their investors choose between a plethora of interest rates/estimated returns which reflect expectations of future official policy rates (incorporating inflation expectations) and risk perceptions. The former – call it the ‘base price’ of risk adjusted rates of return – is under the control of the central bank which has the ability to set it at any rate it wants subject to ensuring that the growth in credit/money reflects the basic market principle of liability when things goes wrong (remember those days – AT1 investors are recalling them it would seem!!). To your point: the focus on ‘normalisation’ may be one key factor holding back corporate investment as if risk free rates are going up ‘one day’, so should risk adjusted returns (all things equal). ‘The’ real interest rate is an ex post observation which, to my mind, has little impact on real economic developments like productivity (which surely must come down to education and training, culture etc.) or available investment opportunities (business legislation, public institution transparency etc…)

I guess my argument was more the other way round. If there is positive productivity growth (driven by all sorts of factors incl those you mention) there will, over the long haul, be a positive real interest rate. Measurement of either concept is, of course, difficuit/problematic, but the concepts less so.

Low interest rates keep everyone borrowing. Without credit creation the system falls down. Is it possible for household and public debt to increase as it has done over the last thirty years over the next?

At a global level it appears to require lower desired savings and higher desired investment. That needn’t involve lots (or any) more leverage. In NZ note that our net foreign debt (% of GDP) is unchaged over 25 years, and public debt (% of GDP) is at among the lower levels in our history.

Negative interest rates are a sustainable equilibrium outcome, but look as though they may be needed in many countries on the path to getting back to something long-term sustainable.

As low as interest rates presently are, the low inflation rate is ample evidence that as far as companies and the public are concerned, interest rates are insufficiently low to entice us to take on much more debt. Besides, the mortgage debt that people are taking on is the primary cause of the present house price bubble — particularly in Auckland.

mjh12345 rightly points out that “Without credit creation the system falls down.” By that I presume he means that without credit creation by commercial banks, and as people and companies pay down existing debt, the money supply shrinks and we enter a deflationary spiral of recession, then a depression, as economic activity winds down. I’m sure that not many people want that!

Logic tells me, a humble engineer, not an economist (though back in the 1970s I passed the two ACA papers in economics, and have taught economics at Yr 12 & Yr 13 levels), that if commercial banks aren’t creating enough credit — which we the public in our ignorance, and to our great cost in wealth transfer from us to the financial elite, use as money — then the RBNZ should instead. After all, the RBNZ has the power to create new money ex nihilo and gift it, free of interest and free of debt, to the government for spending according to its democratic mandate. This is known as QE for the people, and done appropriately it’s a surefire way to edge inflation up a little — or a lot if done to excess. This is what has been advocated for quite some time by prominent economist Lord Adair Turner, the former head of the UK’s Financial Services Authority.

Michael, would you care to comment? If you were still an economist at the RBNZ, would you be urging the governor to do this?

QE is the US finally desperately fighting back against a Chinese Yuan pegged to the USD. The Yuan peg allowed Chinese manufactured products to compete cheaply against US manufactured product. In effect the greatest wealth transfer between west to east due to this currency peg. In order to maintain this peg China bought US treasury bonds.

QE is more than just printing trillions of USD, the gambit also at the same time required the issuance of trillions of dollars of US treasury bonds in equal amounts at lower and lower interest rates. Printing money created a downward momentum on the USD, in order to maintain the Yuan peg, China soaked up US treasury bond allowing cheap credit to US manufacturers whatever China could not soak up, the US Reserve Bank would use its newly minted USD to purchase US treasury bonds at lower and lower interest rates.

This in effect broke the Chinese Yuan peg to the USD and with a lower USD and cheap credit, US companies have started a economic revival of sorts. By managing the money printing and the issuance of US treasury bonds, the US was able to cleverly minimise any inflationary impact and still continue to maintain the confidence on the USD as a Reserve Currency for international trade.

Would you mind, on this blog, articulating your reasons for preferring the conventional, debt-based banking and monetary system to a Sovereign Money banking and monetary system, as avocated by Positive Money in the UK and New Zealand? (see the respective websites: http://www.positivemoney.org and http://www.positivemoney.org.nz )

It is about confidence. Again, look at the other side. Someone must accept your NZD in order for you to buy anything. Its like saying to a shopkeeper, can I use my toilet paper as money to buy my provisions for the week? He would more than likely throw you out of the store or he may accept 500 rolls of toilet paper. If you freely printed NZD, it affects other countries belief that your currency is worth anything so it starts a downward slide. I was initially thinking a limited $50 billion printing program by the RBNZ for the Christchurch rebuild would not be a major confidence issue when you are doing it when the US is in the midst of their QE. But QE is much more complex with the issuance of US treasury bond that maintains a balance and it does require a major trading country to actually buy those treasury bonds.

Our problem is no country pegs to the NZD. If we started a similar program, in all likelihood we lose our line of international credit, ie no one buys NZ government debt issue and interest rates start to go up to try and maintain confidence in the NZD. Then you have a reverse impact, with interest rates going up instead of the desired drop. Note places like Russia, India have interest rates of 10% and above. Remember cause and effect. Ying and Yang. It is a fine balancing act.

Does “boringly conventional” mean orthodox methods and theory is all you know – or is all you choose to know for convenience sake? Point is, when faced with irrefutable evidence, even Alan Greenspan admitted his worldview was wrong. I don’t see ZIRP/NIRP as “boringly conventional” – rather clutching at straws within a failed paradigm given today’s reality;

I’m no economist but I suspect only the brightest and bravest of economists are going to find a just and fair way forward out of this indiscriminate transfer of wealth we are witnessing today.

“The price of cash flows is increased unilaterally. Bond issuers will have to pay more, perhaps substantially more, if they want to get out of debt ahead of schedule in buying back their bond before it matures. The effect goes beyond the circle of bond issuers. All debtors who have borrowed at a fixed rate find themselves in the same hole. They are all trapped. There is a stealthy and indiscriminate transfer of wealth from debtors to creditors.”

I think that para you quote about prices of cash flows is highly misleading. The worst thing that could happen to those owing (nominal) debt is an unexpected bout of deflation (or even super-low inflation) or a new recession. The resistance to a more aggressive use of monetary policy is heightening the risk of both (former in particular). The aim of using monetary policy more aggressively – as say Roosevelt did in the 30s, following belatedly various other countries even incl NZ – is to help create the confidence that future interest rates will be materially higher than they are now.

When population growth is slowing markedly, and we’ve been thru a phase of massive over-investment (esp in China), and savings rates are quite high, the normal way to bring those forces back into balance is lower real interest rates. At present, nominal rates are barely being lowered fast enough to keep up with falling expectations of future inflation.

Thanks, read your piece from 2001. And I really appreciate the fact that you actively engage with those of us who don’t understand your discipline.

As I read it, I thought what a different time – 15 years ago. You recalled then that we’d gone on a bit of a debt binge in the 1990s. I recall JK going to the UK just after having first been elected and being absolutely astounded at the leverage in the Londen banking system. And that was before QE had even entered our everyday lexicon. I also liked your comment about thinking on that time when you had paid off your mortgage and then being able to do something else with the security of having no mortgage/debt. What chance for today’s young professionals just entering the workforce? In general terms, the world’s money/debt as far as I can see will never, can never, ever be repaid (just look at the level of student debt, if nothing else!) – not under current orthodox global banking/monetary policy settings.

Whereas PJM sees sovereign money as an option, I see debt forgiveness (maybe they are the same thing) – no matter what, its not until those in positions of power/knowledge admit BAU won’t work/hasn’t worked, will we start to move toward a future worth hanging around for.

No sense in looking back and saying, “if x number of years ago had interest rates not been raised; or if only we’d considered the zero lower bound issue years ago, etc. etc. etc. – then we would be in a better position today etc. etc… ..”

Point is we aren’t there – it isn’t then – and recovery under the current paradigm is likely impossible.

KM, you can’t easily forgive debt because when you forgive debt it impairs a bank net asset position as debt is an asset on the banks books. Once a banks balance sheet is impaired then the flow on is OBR which is giving savings a haircut. And because savings are a liability savers lose their life savings in your kindness to forgive debt.

Sure it has been done before but you would have to be in total desperation before you would embark on something as drastic as debt forgiveness. Personally I would love to have my debt forgiven rather than working my butt off trying to pay it off.

Both Prof. Steve Keen and Lord Adair Turner have advocated helicopter money — another term for sovereign money, Keen with the proviso that recipients who are debtors must first use their helicopter money to pay down their debts.

Both Keen and Turner say that it would be a surefire way to get inflation up to the middle of the government’s target band — which QE and lowering the OCR have failed to do.

Of course, in a nation with a Sovereign Money banking and financial system, interest rates would be left entirely to market forces, and the Money Creation Committee (MCC) would order the creation by the state-owned central bank of just sufficient new electronic money for the government to spend to ensure that demand kept the rate of inflation in the middle of the target band.

In order to understand this stuff, one first needs to appreciate that state-owned central banks are even more capable than commercial banks in creating ex nihilo electronic money. Money created ex nihilo by state-owned central banks need incur no interest and need not be paid back, which results in 100% of the seigniorage accruing to the government.

If NZ had a Sovereign Money system, and the middle of the target band was 2%, and economic growth was 3%, the MCC would be creating around $13 billion p.a., and the annual tax take could be reduced by that amount.